Revenue Management

What is Revenue Management?

The Revenue Management, formerly called Yield Management, has its origin in the airline industry and it all started in 1972 when Kenneth Littlewood was working for BOAC / British Airways and developed the bases of revenue management by creating what is known as the Littlewood rule which was subsequently implemented by the American Airlines airline in the 1980s as a result of the liberalization of the sector in the US.

This rule relates the capacity of sale of a service with the income it can generate when we have two different rates associated with that same service, depending on the foreseeable demand of the most expensive fare. In this way it has been possible to optimize the work flows and human resources involved and save more than half a billion euros in just two years. Since then, this strategy has also begun to be applied by hotels, which used it to make forecasts in their room reservations and thus know how to estimate their occupation at a certain time.

Revenue Management is the sum of techniques and strategies that a company applies to be able to sell the right product / service, to the right customer, at the optimum time and at the most profitable price.

Today Revenue Management has become a complex task for hotels, which is not only the application of discounts or price changes, but is the sum of strategies that a hotel develops to obtain the maximum possible benefit for room and therefore should not be taken into account only the price factor, but a multitude of factors that can influence the final result, such as the reputation of the hotel, the opinions of customers, the benefits offered to customers in front of to the competition, the prices, the adequate management of the profile of the hotel in the social networks, the tariffs, etc.

What are the benefits of Revenue Management for a Hotel?

The main objective of Revenue Management is to obtain the greatest possible benefit / room, but there are also other benefits derived from the good organization of an establishment:

• Increase the benefits through an optimal occupation forecast and adequate price policies
• Avoid overbooking
• Improve workflows and optimize the human resources involved in the management of the establishment
• Increase rates by constantly studying the competition, with the help of existing technological tools in the market and the intelligent use of the different distribution channels

We emphasize that offering discounts and special rates at the right time and in the right channel is the factor with the greatest potential and has the most positive impact on customers when making a reservation. There are several actions that we can apply in this regard, including:

Encourage Upgrades and Cross-selling

When the client has booked a room, we can send him personalized messages before his stay to offer him a room of a higher category or additional services that he can enjoy during his stay and thus increase revenues and provide a better customer experience. Upgrades and cross selling have to work as an incentive, therefore, we recommend to offer the customer a discounted price so that he can feel motivated to book a better room or book additional services.

Study the competition

It is essential to know what our site is in the market. For this reason, it is very important to observe the competition and to know at all times what services, what rate plans and revenue management strategy it follows, in order to offer an optimal service at the right price to our customers.

Improve the price if the client has an adjusted bugdet

It is important to always have the rooms occupied, so in the case where we have a client with a tight budget, we can offer a special discount, in order to get the client’s trust and be different from our competitors.

Develop a Loyalty Strategy

The revenue management together with an adequate CRM strategy will allow us to know the value of a customer’s life and offer discounts (mainly as upgrades and cross-selling) to high-value customers and in this way increase the client’s link with the brand / establishment

Offer Packages

The creation of packages made up of rooms and other external products also represent a high incentive for customers. Depending on our geographical position and the different interesting activities in our area, we can close agreements with different local companies of different products or services, such as transport, restaurants, guides, entrance to museums, etc. and in this way satisfy more than the need for accommodation and provide a pleasant customer experience.

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